Equalization Levy

[vc_row][vc_column][vc_column_text]Are you tax compliant while making online payments towards Advertisement cost for your entity?

Read to understand more about Equalization levy applicable on online payments

What is Equalization Levy (EL)

Equalization levy is a direct tax that required the service receipt to withhold tax while making payment to service recipient who do not have a Permanent Establishment in India and hence not liable to tax in India

When is it Applicable

EL is applicable to

1. Payments made to a non-resident who does not have tax base in India and
2. Annual payment to such single non-resident in a financial years exceeds Rs. 100,000. Once it exceeds Rs. 100,000 levy should be made on the full payment that was made during the year and
3. Payment is made towards online advertisement or digital advertising space

Rate at which EL is to be deducted

EL shall be at 6% of the gross consideration made. The computation is a little tricky in the sense that it is computed on the assumption that whatever is actually paid to the service provided is paid after EL has been deducted

For example if payment to LinkedIn in a year comes to Rs. 500,000, it is assumed that the payment of Rs. 500,000 is after deducting the EL. EL on the transaction shall therefore be

Remittance of Tax and Filing of return

EL involves payment of tax to government and filing of return

Payment of tax is similar to TDS provision, where tax shall be paid before 7^th of the succeeding month and in respect of March, payment shall be made by April 30^th

The return or the EL statement should be filed before 30^th of June following the Financial Year. The form for filing is Form 1

Consequences of non-compliance

1. Non-payment / delay in payment – interest @1% for every month or part of the month  on the Levy outstanding
2. The payment made to the service provider shall not be allowed as an expenditure while computing Income under PGBP
3. Penalty for non-deduction – Penalty equal to the levy failed to be deducted
4. Penalty for non-deposit to Govt – Penalty of Rs. 1000 per day subject to maximum of levy to be deposited
5. Penalty for non-filing of return – Rs 100 per day during the period of non-filing

Author: CA. Anu Jose, FCA

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